EU running out of time as Greece nears the exit

European Council President Herman Van Rompuy, right, and European Commission President Jose Manuel Barroso, address the media at the end of an EU summit, at the European Council building in Brussels, Thursday, May 24, 2012. The leaders of the 27 countries that make up the European Union met in Brussels to try and find a way to keep the debt crisis in Europe from spiraling out of control and promote jobs and growth. Rompuy said that all EU leaders want Greece to remain in the eurozone while respecting its commitments to pay back its debt. (AP Photo/Yves Logghe)

Photo: Yves Logghe

ATHENS, Greece - European leaders insist they want to keep Greece in the eurozone but are putting off any agreement on how they hope to accomplish that.

Greece says it, too, wants to stay in the eurozone, but until after elections, it's uncertain whether it can implement the austerity that Europe has set as a condition for doing so.

Essentially, both are playing for time - about a month. The question is whether financial markets will wait or force their hand.

Concerns that European leaders lack the political will to tackle the continent's economic problems have worried the markets for weeks.

Among the 17 countries that use the euro, seven are in recession. Business confidence is under pressure and banks are feeling the squeeze. The biggest fear is that if Greece cannot be kept in the euro, other larger economies - like Spain or Portugal - might face the same fate.

'Financial tsumani'

"The breakup of the eurozone will be a disaster. Greece could leave, and others could leave, and this would be a huge financial tsunami," said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. "Europe is not doing enough, and the market may not wait for them."

Greece has gone through round after round of massive spending cuts and tax hikes to slash its deficit and rein in its debt in exchange for the international bailout loans that help it pay the bills.

Next vote is June 17

But the country is now in its fifth year of recession, and many argue it cannot hope for a recovery if it sticks to the deal. And Greeks - though still keen to remain in the single currency club - are calling for better terms or, at least, for the pace of austerity to be slowed down.

In a general election this month, neither of Greece's two main parties, both of which support the bailout, fared well. Minor parties that are threatening to renege on those commitments saw their popularity surge. New elections are set June 17.

If the Greeks pick an anti-bailout government the second time round and renege on the terms of the bailout, the flow of funds will be stopped and the country could be forced into a messy exit.